When Will Cisco Go Soft?

New report says Cisco will ante up in the softswitch game within 12 months

October 18, 2004

2 Min Read
When Will Cisco Go Soft?

Cisco Systems Inc. (Nasdaq: CSCO) is hot on VOIP, security, and IP controllers at the moment, but its next-generation services infrastructure isn't finished yet. In the next 12 months, the company will likely add a significant softswitch acquisition to its stable, according to a new report on the M&A market by Light Reading Insider.

Already in 2004, Cisco has bought dynamicsoft Inc., P-Cube Inc., Riverhead Networks, and Twingo Systems Inc. -- an amalgamation of next-generation network pieces that aid VOIP deployments, IP services, and security (see Cisco Plucks P-Cube for $200M, Cisco Drafts Dynamicsoft, Cisco's Security Spree Continues, and Cisco: It Takes Two to Twingo). But there's a piece missing, according to the report, "M&A: Consolidation Craze."

Cisco "still lacks an RBOC-quality, carrier-class Class 5 softswitch," the report says. And the reasons are clear why Cisco likely won't build one from scratch. "This is a big-ticket item –- something that requires a lot of engineers and venture capital to build -- so there aren't a lot of companies out there building them."

"There aren't a lot of them out there, the carriers say they need them, and Cisco doesn't have one. We would expect Cisco to buy a softswitch vendor in the next 12 months," writes Insider editor R. Scott Raynovich, one of the report's authors.

Possible targets include Cisco reseller Italtel SpA, as well as Sonus Networks Inc. (Nasdaq: SONS), which Cisco has pursued before, the report notes (see Scuttlebutt: Italtel's Up for Grabs and Cisco Skips Class 5).

But the M&A craze doesn't start and end with Cisco. The new report spells out the M&A strategies of North America's largest incumbent equipment suppliers, weighing the financial strength and valuations of 32 large public companies in the telecom universe.

The report also lists which private companies will likely be acquired or pursue an IPO in the next 12 months (see M&A Mojo).

Though the telecom industry has taken years to recover from its hammering after the Internet bubble, the recent movement in the M&A market hints that things are evening out. And, with so many companies having successfully restructured their balance sheets, much more M&A activity is likely in the near future, as big equipment vendors look to replenish their depleted research and development organizations.

The new Light Reading Insider, which delves deep into the recovery-via-M&A-activity discussion, is available here.— Phil Harvey, News Editor, Light Reading

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